CHAPTER 14
COMPENSATING
SALESPEOPLE

THE SALES FORCE
REWARD SYSTEM
 Financial compensation
 Non-financial compensation

IMPORTANCE OF SALES
FORCE REWARDS
 Sales force
 Company
 Customer relations and goodwill
 Strategic planning

DESIGN CONSIDERATIONS
 Inherent conflicts
 No plan fits all situations
 Internal equity
 External equity

COMPENSATION PLAN
OBJECTIVES
 Correlate efforts, results, and rewards
 Control activities
 Ensure proper treatment of customers
 Attract and keep good salespeople

BASIC REQUIREMENTS
 Provision for two types of income
 Flexibility and stability
 Simplicity
 Economy and competitiveness
 Fairness

STEPS IN DESIGNING A
PLAN
1.
Review job analysis/description
2.
Determine objectives
3.
Determine job elements
4.
Establish level of compensation
5.
Pretest
6.
Administer/Evaluate

REVIEW JOB DESCRIPTION
 Review nature, scope, and difficulty of job

SET OBJECTIVES
 Increase volume
 Obtain new accounts
 Minimize expenses

ESTABLISH JOB
ELEMENTS
 Controllable
 Measurable

LEVEL OF COMPENSATION
 Type of plan
 Size of company
 Age of salespeople
 Industry

COMPENSATION ISSUE
 Should sales managers always be paid more than the people they manage?

PRETEST
 Start with one or two sales divisions

ADMINISTER/EVALUATE
 Implement
 Review and modify where necessary

METHODS OF
COMPENSATION
 Straight salary
 Straight commission
 Combination
 Team Selling
 Optimum Pay Plans

STRAIGHT SALARY PLANS
 Salary is a fixed element
 Degree of security
 Lower turnover

“Full” approach to selling
 No direct incentive

WHEN TO USE
 While in a training mode
 Entering a new territory/new product market
 Tremendous time to sell to one account
 Missionary sales positions
 Joint selling

STRAIGHT COMMISSION
PLANS
 Based on a unit of accomplishment
 Base, rate and starting point
 Advances (drawing account)
 Provides incentive
 Weeds out poor performers
 Supervision problems
 Split commissions

WHEN TO USE
 Company is weak financially
 Great incentive required
 Little non-selling work required
 Supervision not possible
 Long term relationships not important
 Part-time sales people/manufacturer’s agents

RATE SCHEDULES
 Progressive rate schedule
– 5% on first $20,000
– 7% on next $80,000
– 10% on amount over $100,000
 Regressive rate schedule

COMBINATION PLAN
 Most popular plan
 Overcomes some of the weaknesses of straight salary and straight commission plans

TEAM SELLING
 More common today
 Difficult to provide rewards
 Shared commissions/group bonuses

OPTIMUM PAY PLANS
 Commission based on gross margin
 Forces individuals to focus on items which maximize profits for the company

OTHER COMPENSATION
ISSUES
 Bonuses
 Drawing Accounts
 Expense Accounts

BONUSES
 Payment for above normal performance
 No obligation to provide regularly

DRAWING ACCOUNT

Cash advance called a “draw”

DRAWING ACCOUNT
MTH DRAW SALES COMM EOM
PYMT
Jan $1,800 $40,000 $4,000 $2,220
Feb $1,800 $15,000 $1,500 0 (owes
$300)
Mar $1,800 $30,000 $3,000 $900
(10% commission rate)

EXPENSE ACCOUNTS
 Reimbursement for travel and other sales related costs
 A troublesome task for the sales manager!

EXPENSE BREAKDOWN
Meals
Air Travel
Automobile
Lodging
Entertainment
Other
16%
26%
24%
18%
13%
3%

CHARACTERISTICS OF A
GOOD EXPENSE PLAN
 No net gain/loss
 Equitable treatment
 No curtailment of beneficial activities
 Simple and economical
 Avoidance of disputes
 Company control/elimination of padding

CONTROLLING EXPENSES
 Type of plan
– salary versus commission
– unlimited versus per diem
 Automobiles
 Training
 Travel planning

FROM THE TEXT
 Read everything in Chapter 14!!